- First fraud case in China over virtual currency liquidity withdrawal, leading to a 4.5-year prison sentence for Yang Qichao.
- Yang Qichao’s conviction highlights China’s regulatory challenges with decentralized virtual currency transactions.
- Withdrawal of liquidity from issued token deemed criminal fraud, setting a legal precedent in China’s crypto law.
In a trial legal case, a 24-year-old Chinese college student, Yang Qichao, was sentenced to 4 years and 6 months in prison for fraud related to virtual currency. The People’s Court of Nanyang High-tech Industrial Development Zone in Henan Province found him guilty of defrauding an investor of 50,000 USDT by withdrawing liquidity from a token he issued on the BNBChain.
The Incident
According to the Paper, Yang, a senior at a Zhejiang university, issued a token named Blockchain Future Force (BFF) on the Binance Chain in May 2022. He added 300,000 BSC-USD and 630,000 BFF to the liquidity pool, a crucial element in decentralized virtual currency transactions. At the same moment, investor Luo bought 85,316.72 BFF for 50,000 BSC-USD. Yang withdrew the liquidity 24 seconds later, causing a significant depreciation in BFF’s value and resulting in Luo’s substantial loss.
Legal Proceedings
Luo reported the incident to the police, leading to Yang’s arrest in November 2022. The prosecution argued that Yang created a fake BFF coin identical in name and promotion to another token to deceive investors. They claimed he added 300,000 USDT as bait, luring Luo to invest 50,000 USDT, then withdrew over 350,000 USDT, including Luo’s investment.
Defense Arguments
Yang’s defense contended that the BFF token had a unique, unalterable contract address and was not a fake currency. They emphasized that both parties were experienced in virtual currency trading and understood the risks involved. The defense argued that withdrawing liquidity, although unkind, was not illegal on the platform and that Luo had not suffered a real loss due to subsequent appreciation of the BFF coins.
Legal and Regulatory Implications
The case highlights the complex legal landscape surrounding virtual currencies in China. While Chinese law does not recognize virtual currencies as legal tender, the court acknowledged their property attributes for sentencing purposes. This case marks the first time the issuance of virtual currency and withdrawal of liquidity have been treated as criminal fraud.
The trial’s outcome underlines the regulatory challenges and legal uncertainties in crypto space. As virtual currency trading grows, cases like Yang’s may become more common, prompting further legal scrutiny and potentially new regulations to protect investors.
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